In a brillian example of “Schadenfreude”, happiness at the troubles of others, Christopher Wasserman, President and founder of the Zermatt Summit, an independent Swiss business business meeting run by the Zermatt Foundation, delivered a statement. He said:
“The continued loss of confidence is hurting our economies, and ultimately the root cause is loss of trust which has fallen to an all time low and could fall further. [It is] due to the high risk approach to debt, leading to a collapse in trust of our political and business leaders.
“Already we are sowing the seeds for a second asset bubble.” Nonsense.
The euro has fallen two a 4-yr low, below the Fibonacci support level of $1.22 to the dollar, according to Dutch chartist Charles Nenner.
What will the impact of a weak euro be? First of all the poor non-euro Swiss from Zermatt, Zurich, and Zug should not be listened to now as they seem to be gloating from their Alpine fastness. Hard money advocacy is an easy thing to preach if you are not in a monetary block with countries facing both deficits and the risk of social unrest.
And the euro adjustment will hurt Alpine Swiss profits (and prophets). The Swiss, who earn most of their francs selling goods to neighboring countries will not have an asset bubble. Instead they will have lower profits from their multinational corporations like Nestle and ABB, Credit Suisse or Novartis. They will lose business and profits.
As the euro began life at parity with the dollar, there is nothing inherently wrong with it falling back to that level…. if you are in Europe.
The odds are that a lower euro will boost exports, lower debt, and help all Europeans, including the PIIGS, to adjust. Germany, leider, will have less to spend on imports, and sell still more goods produced by its efficient mid cap companies, but the profits translated into euros will be higher than what the Swiss will book, thanks to a cheaper currency to convert to.
Forget the fear of inflation. This bogeyman is not going to emerge into the daylight. The European central bank is crafting a way for banks to put money on deposit with the ECB to offset the new government loans from Greece it has now bought, to prevent a soaring euro money supply and inflation. Central banks have tools that nip asset bubbles, if they choose to use them.
The booming emerging markets will get nipped. Lower European demand for raw materials will hurt Brazil and Russia. Higher prices for their goods and services in Europe will hurt China and India sales to Europe.
The slowdown in the EU, forced on its southern tier countries, will be shared by all, even the most virtuous low spenders. The adjustment will be on one currency block, not on bits and pieces of it.
And Germany is not going to abandon the euro despite the pain its companies will suffer. Recession is back.
For the rest of us, there will be problems too.
For North America, things are not as dangerous as for Switzerland because while our banks have problems, they have not been shut out of the business of providing a tax haven, which Switzerland has been in since the 18th century. Because we tend to export more that Europeans do not produce for themselves, like software and airplanes and grain. As the loonie moves toward parity with the greenback (it’s close) the Canadian edge will become less sharp.
The loonie, the greenback, and the euro may all reach a common level. Less so the odds that the Oz dollar will join the pack. The lucky country is going to suffer.
Raw materials prices cannot hold up against a European recession. The price of oil has already fallen and there will be more impact on other commodities in the next 18 to 24 months.
Gold may hold up for its own independent reasons, but not the rest.
For the USA, I would like to see a new higher tax on gasoline to offset the fall in the price of crude, mainly to protect alternative fuel spending and US geopolitical interests and independence. There could be a bit of money turned over to poor Americans driving gas-guzzling clunkers to faraway jobs The rest can be used to slash the deficit.
I’ve been calling for global level gas taxed since 1976 when I worked for the US Senate Foreign Relations Committee after the oil price was quadrupled. We need to stop drugging ourselves with cheap oil. I worked then for Sen. Clifford Case, Rep. NJ, who called for an oil tax.
But of course I am a New York subway child who only learned how to drive at age 28, so you don’t have to listen to me. Even the Senator was lampooned because he had commuted by train from Rahway to New York City before going into politics. Red-blooded Americans drive all over the place and it is their right. Or maybe their obligation, I note, as today I took Sophie to the Dana Farber Elementary School, Theo to kindergarten at a synagogue, and Jules to art and music at the Newtownville social center.
The latest news is that my daughter-in-law will be flying off to her conference in Nottingham after all, and that I will be babysitting the rest of the week. It has been a fraught morning.
More for paid subscribers follows.
